It’s good to be a have. In a depressed oil price environment, you can spot the haves: They are generally a larger-cap E&P having a simple balance sheet, low debt, forecasted production growth, cash flow, economic projects at current prices, and most importantly, access to ample public capital.

However, “if you’re trying to figure out how to pay your bills, have high levels of debt, and you fell into the routine last year of borrowing money at 4% from the bank to drill 50%-plus IRR wells, then you wake up today debt laden with low margin production, low economic return wells and fringy assets, you’re probably one of the have-nots,” according to Seaport Global managing director Michael Bodino, who spoke at Hart Energy’s DUG Permian conference.

For the record, the “haves” in Bodino’s mind are companies whose cost of capital is not significantly impacted in current market conditions. “Have-nots,” on the other hand, are companies whose debt is trading at a huge discount to par, whose equity is down 60% to 99%, and that do not have access to said capital.

The market between the haves and have-nots is truly bifurcated, he said. “The good news is a lot of cash is available for oil and gas operators. The bad news is it’s not available to everybody.”

More than 80% of the nearly $10 billion raised in public markets thus far this year has been by companies with market caps over $1 billion. The higher-credit-quality names have accessed both debt and equity, with issuances at attractive rates and in senior unsecured positions, shoring up cash coffers to get them through this year and next. “Resources are open to the best companies,” he said.

But smaller and more levered players are having a difficult time. About half the public producers are in defense mode now, he said. “There are a lot of have-nots.”

So, what is a have-not to do? “You are seeing companies revert to debt-for-debt exchanges, or debt-to-equity exchanges, or issuing debt at the top of the cap structure, or noncore asset sales to create liquidity.”

Moving down the credit-quality list, smaller companies without access to equity are forced into senior secured notes at expensive rates, as were Energy XXI and Warren Resources. “If you have a distressed balance sheet, you’re having to approach nontraditional sources willing to do first and second lien debt, which results in more leverage to your company,” Bodino said. Goodrich Petroleum and Comstock Resources fall into this camp.

A handful of companies, including Halcon Resources and SandRidge Energy, have traded debt for equity as pressure relief to the balance sheet.

Others are carving off assets.

“A lot of companies are long acreage and short capital, and we’re going to see more monetization of non-core assets. They’re kicking the can down the road to make sure they have enough liquidity through the cycle.” Bodino expects good assets to come to market by year-end. For the haves, “we think there are opportunities to get footholds in several of these core basins.”

Particularly, smaller companies with loans by community banks will be pressured to monetize, “so a lot of smaller deals” will result. With hedges rolling off year-end, larger companies may peel off assets looking for liquidity, he postulated.

Liquidity is key.

Not all have-nots will survive. Bodino reported a record number of producers have hired restructuring advisors and possible bankruptcy services. “A lot of companies used leverage to grow the past couple of years, and unfortunately, a lot of their capital structures are built for an $80-plus oil environment that just isn’t suitable for today’s commodity prices.”

He rattled off 10 public and private companies that have already filed for bankruptcy—Quicksilver, Endeavour, BPZ, American Eagle, Dune, ERG among them—and believes another half-dozen are likely. Add to those, “We don’t have a grasp of how many private companies are going to file.”

A number of companies have hired advisors, including Venoco, Midstates, Sabine, Samson, Saratoga and PostRock, but the likelihood of them all restructuring is zero, he said. “Some are just too far gone. A lot aren’t going to make it.”

The problem with restructuring: While you can potentially fix capital structure and bad management, “you can’t do anything with bad assets. The question is, is there something to restructure around?”

The next 18 months are critical for these have-nots, he declared. “Bottom line: We think the market is going to be a little bumpy over the next several months.”

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